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Mortgage Basics: Variable-Rate Mortgages

A variable-rate mortgage. also commonly referred to as an adjustable-rate mortgage or a floating-rate mortgage. is a loan in which the rate of interest is subject to change. When such a change occurs, the monthly payment is “adjusted” to reflect the new interest rate. Over long periods of time, interest rates generally increase. An increase in interest rates will cause the monthly payment on a variable-rate mortgage to move higher.

Pros Variable-rate mortgages have enjoyed a surge in popularity as a result of increasing home prices. With the price of housing skyrocketing, many would-be homeowners are being priced out of the market when they attempt to cover the costs of a new home with a traditional, fixed-rate mortgage. Variable-rate mortgages have lower initial interest rates than fixed-rate mortgages, resulting in lower monthly mortgage payments.

Qualifying for a variable-rate loan tends to be easier than qualifying for a fixed-rate loan because the payments are more affordable. This situation is particularly valuable when interest rates are high because lower payments enable buyers to afford more expensive homes.

Variable-rate mortgages have a set period of time during which an interest rate that is lower than the rate available on a fixed-rate mortgage remains in effect. This is commonly referred to as an introductory, or teaser. rate. This time period varies depending on the loan. After this period, the rate on the mortgage will vary based on the prevailing rates in the market.

Variable-rate mortgages are much more flexible than their fixed-rate counterparts, enabling buyers to choose terms that provide a lower initial payment for periods ranging anywhere from one month to 10 years.

Such flexibility enables buyers to account for things such as bonus payments, expected inheritances and economic environments where interest rates are falling, in which case the interest rate and monthly mortgage payment can actually decline over time. Variable-rate mortgages also provide lower monthly payments for people who do not expect to live in a home for more than a certain number of years and those who expect to be able to pay off their mortgages rapidly. (For related reading, see Mortgages: Fixed-Rate Versus Adjustable-Rate .)

Cons One of the biggest risks for a homebuyer with a variable-rate mortgage is payment shock. which happens with interest rate increases. If interest rates increase rapidly, homebuyers may experience sudden and sizable increases in monthly mortgage payments, which they may have difficulty paying.

Another potential disadvantage of variable-rate mortgages is that they are significantly more complex than their fixed-rate counterparts. Because they are available in a variety of terms, choosing the right loan can be a challenge. Costs aren’t easily compared, interest rates vary significantly by lender, shifting interest rates make it difficult to predict future payments and payment adjustments can make budgeting a challenge.

Some of these loans provide a period of time during which the borrower pays only the interest on the loan. When the loan’s principal comes due, particularly if interest rates have risen, the amount required to service the monthly mortgage payment can increase by 100% or more. Also, many of these loans have complex terms, including penalties for loan prepayment and excessive fees for refinancing.

They also come with a complex vocabulary of terminology with which borrowers need to be familiar. A sampling of critical terms includes adjustment frequency. which refers to the frequency of time between interest rate adjustments; adjustment indexes. which help borrowers gauge the amount of expected interest rate change; margin. which helps borrowers understand the relationship between their loan rates and the underlying benchmarks used to set these rates; caps. which limit the amount by which the rate can rise with each adjustment; and ceiling. which refers to the maximum interest rate after all increases. (To learn more about drawbacks, read American Dream Or Mortgage Nightmare? and ARMed And Dangerous .)

When to Choose a Variable-Rate Loan Variable-rate loans are generally the recommended option for people who anticipate declining interest rates, only plan to live in a particular home for a limited number of years, or anticipate being able to pay off their mortgages before the interest rate adjustment period is reached. Although they are often used by borrowers seeking to purchase more home than they can actually afford, this is not the financially prudent way to borrow money.

Likewise, even when a variable-rate mortgage is more cost effective than a traditional loan and the borrower can afford the property being purchased, the borrower also needs to be comfortable with the potential for the interest rate to increase and the payment to go up. If the thought of higher payment would keep you up at night, you might want to reconsider your choice of loan. While variable-rate loan are certainly more complicated than fixed-rate loans and are not the right choice for everyone, they can be a powerful tool that results in significant financial savings.

Mortgage Basics: How To Get A Mortgage

Once you’ve learned the terminology and figured out how much you can afford to spend on a new house, the next thing you will need to do is get a mortgage. Because you will be borrowing money, lenders will examine your credit score. a metric used by lenders to determine the likelihood of an individual paying back the money he or she has borrowed.

Clean Up Your Credit Higher credit scores translate into the ability to borrow more money at lower interest rates. To make sure you get the best possible deal, you should check out your credit score by ordering a copy of your full credit report. (The free reports that you can get list your creditors but don’t list your numerical score, often referred to as a FICO score ). Check your score well in advance of when you need the loan, so that you will have time to take any necessary steps to improve your credit prior to applying for a mortgage or fix any inaccuracies that may have occurred. (To learn more, read Consumer Credit Report: What’s On It and The Importance Of Your Credit Rating .)

If your score is lower that you would like it to be, spend six months making all loan payments on time, paying down or paying off the balances on your credit cards, closing cards that you don’t use, and refraining from opening new cards or incurring other debt. Keep in mind that good credit is not built overnight. It’s better to provide creditors with a longer historical time frame to review: a longer history of good credit is always favored over a shorter period of good history. (For related reading, check out How Credit Cards Affect Your Credit Rating .)

Pre-Qualification and Pre-Approval To get a good idea of how much you can borrow, a lender can pre-qualify you for a mortgage. To pre-qualify, you meet with a lender and provide information about your assets. income and liabilities. Based on that information, the lender will provide an estimate how much money you will be able to borrow. Knowing this amount beforehand will allow you to determine the price range of homes before you go house hunting.

The entire pre-qualification process is informal. The lender does not verify the information provided, does not charge you a fee and does not formally agree to approve a mortgage for the amount you are pre-qualified to borrow.

However, if you are serious about buying a house, you will want to get pre-approved for a loan. With pre-approval, the lender checks your credit, verifies your financial and employment information and confirms your ability to qualify for a mortgage. Pre-approval strengthens your position to make an offer when you find a property that you like. Sellers are generally more willing to accept offers from pre-approved buyers, because it shows that the buyer actually possesses sufficient resources available to purchase the house.

Lenders, Lenders Everywhere Turn on the television, read the newspaper, or just drive down the street and read the signs along the roadway, and you will quickly see that there is no shortage of businesses that want to give you a mortgage. Banks, mortgage brokers and online vendors are all working hard to capture your attention and offer you the opportunity to borrow some cash from them.

Banks are the traditional source of mortgage funding. They offer face-to-face service, recognized name-brands and fees that are generally competitive with other lenders. What they may lack is a broad variety of loan programs, which may mean that they may not offer the lowest interest rates or the lowest fees.

Mortgage brokers generally offer a large variety of loans, which includes loans for people with bad credit. Variety also often results in the lowest interest rate and the most convenient one-stop-shopping for comparison purposes. Because you can physically meet with a broker, the face-to-face service is another plus. In the minus column, mortgage brokers are often more expensive than other funding sources.

Online mortgage providers offer a large variety of loans, convenient round-the-clock shopping and instant comparisons between multiple loans. They often lack personal service – in some cases even reaching a human being by telephone can be nearly impossible to do in a timely manner.

As the variety of lenders suggests, there is no single source of mortgage financing that works best for everyone. Searching for the best deal among all of the potential providers or working with the provider that best meets your personal needs from either a comfort perspective or loan type are both viable ways to address the issue.

Time to Shop Once you’ve chosen a lender and received your pre-approval, you are ready to shop. Unlike a trip to the mall or even a trip to the car dealer, home shopping can often involve hundreds of hours and months of effort. Don’t get discouraged if you don’t find the house of your dreams on your first try. Take your time, tour a lot of properties and don’t spend your money until you are sure that you’ve found a place that is right for you.

Fixed Rate Mortgages

Fixed rate mortgages allow a borrower to know what all future monthly payments will be. Because the interest rate is fixed. your payments will not vary when you use a fixed rate mortgage.

With a fixed rate mortgage, you calculate how long it will take to pay off all the principal and interest, and you arrive at a monthly payment. You will pay the same monthly payment though the entire term of the fixed rate mortgage.

Of course if you sell your home before the end of the term, you can just pay off the balance that you owe.

Fixed Rate Mortgage Choices

There are two main types of fixed rate mortgages:

30 Year Fixed Rate Mortgages and

15 Year Fixed Rate Mortgages

Other terms (such as 10 or 20 Year Fixed Rate Mortgages) exist but they are not as commonly used.

Fixed Rate Mortgage Advantages

Fixed rate mortgages are helpful because they allow you to predict what your housing payments will be in the future. No matter what happens with interest rates, your payments won t change if you ve used a fixed rate mortgage. However, payments can change with other risky mortgages .

Fixed Rate Mortgage Disadvantages

With a fixed rate mortgage, you typically have a higher monthly payment than you might have with some of the other mortgage choices.

That is because the fixed rate mortgage offers you the safety of knowing that your payments will not increase. Because lenders don t know what will happen with interest rates over the next 15 to 30 years, they charge you for this luxury.

Should You Use a Fixed Rate Mortgage?

You should discuss your particular situation with a talented and helpful lender.

Generally, you ll find that fixed rate mortgages are the right choice if:

You think interest rates are low

You can afford the payment for the house you want

You need to budget for and predict monthly payments

You will keep your home for a relatively long period of time

Getting the Best Fixed Rate Mortgage

To get the best fixed rate mortgage you just need to shop around and do your homework. Ask for quotes from several lenders, and ask your friends and associates if they can refer an honest lender.

Fixed rate mortgages can have a variety of fees built into the final payment that you are quoted. Ask for a written, itemized explanation of what fees you are paying — and why. It never hurts to ask if the lender will waive a fee or two. If you are a good borrower or if you re making a large purchase, your chances are better.

Bankruptcy Definition: What Exactly Is It?

Bankruptcy is a generalized term for a federal court procedure that helps consumers and businesses get rid of their debts and repay their creditors. If you can prove that you are entitled to it, the bankruptcy court will protect you during your bankruptcy proceeding. In general, bankruptcies can be categorized into two types – liquidations and reorganizations .

Among the different types of bankruptcies, Chapter 7 and Chapter 13 proceedings are the most common for individuals and businesses. Chapter 7 bankruptcies normally fall in the liquidation category, meaning your property could be sold in order to pay back your debts. Conversely, Chapter 13 bankruptcies generally fall under the reorganization category, meaning that you will probably be able to keep your property, but you must submit and stick to a plan that will allow you to repay some or all of your debts within three to give years.

Both individuals and businesses are allowed to file for Chapter 7 bankruptcy. These proceedings typically last between three and six months.

Liquidation of property – In a Chapter 7 bankruptcy proceeding, some of your property may be seized and sold to pay off some or all of your debts. However, as a benefit of this type of bankruptcy proceeding, any unsecured debts (debts that are not guaranteed by collateral) will be wiped out. In addition, there are certain types of property that cannot be sold in order to pay off your debts, such as the furniture in your home, you car and your clothes.

Secured debt – Secured debts are treated differently than unsecured debts in a Chapter 7 bankruptcy proceeding. In a Chapter 7 bankruptcy proceeding, you (the debtor) have to make a choice between allowing the creditor to repossess the property that secures the debt, continuing to make payments on your debt to the creditor, or paying the creditor a sum equal to the replacement value of the property that secures the debt. In addition, some types of secured debts can be wiped out during a Chapter 7 bankruptcy proceeding.

Chapter 7 Eligibility – Before you can file for Chapter 7 bankruptcy, you must be able to show that you are eligible to file for Chapter 7. To be eligible for Chapter 7, you cannot make enough money (minus certain expenses and monthly debt payments) to be able to fund a Chapter 13 bankruptcy repayment plan. There are other requirements to be eligible to file for Chapter7 bankruptcy.

Debts that will not be wiped out by Chapter 7 bankruptcy – While credit card debt, unsecured loans, and other debts can be forgiven in Chapter 7, things like child support, taxes that are due, and alimony payments cannot be wiped out. For more debts that will remain after a Chapter 7 bankruptcy proceeding, see Debts that Remain After a Chapter 7 Discharge.

Also known as the wage earner bankruptcy proceeding, only people with a reliable source of income are allowed to file for Chapter 13 bankruptcy.

Paying off your debt – In Chapter 13 bankruptcy in federal court, you must work with the court to come up with a repayment plan. and stick with the plan over the next three to five years. The amount you will need to pay is based upon your income, how much debt you owe, and how much the creditors of your unsecured loans would have received if you had filed under Chapter 7 instead of Chapter 13.

Limits on debt – In order to be eligible to file for Chapter 13 bankruptcy, you must be able to show that your debt is under the limits for filing. As of September, 2009, the limit on secured debt was $1,010,650 and the limit on unsecured debt was $336,900. If you have more than either of these amounts, you may not be able to file for Chapter 13 bankruptcy protection.

Repaying secured debts – Chapter 13 bankruptcy may allow you to repay secured debts, even if you are behind on payments, without having the property that secures the debt be repossessed. You may be able to put your past due payments into your debt repayment plan, and pay them off over a period of years.

Other forms of Reorganization Bankruptcy

There are two other types of reorganization bankruptcy in addition to Chapter 13. These are Chapter 11 and Chapter 12.

Chapter 11 bankruptcy proceedings are normally used by struggling businesses as a way to get their affairs in order and pay off their debts. In addition, some individuals also file for Chapter 11 bankruptcy when they are not eligible for Chapter 13 bankruptcy or own large amounts of non-exempt property (like several homes). However, Chapter 11 can be much more expensive and time consuming when compared to Chapter 13.

Chapter 12 bankruptcy is very much like Chapter 13 bankruptcy, except that it is only available to people that have at least 80% of their debts arising from a family farm.

Get a Free Initial Legal Review

Financial difficulties can cause stress, confusion, and panic. It can be very difficult to sort through the legal and practical considerations required to determine whether bankruptcy is necessary or which form of bankruptcy to pursue. Contact a local attorney for a free initial legal review of your situation to learn how a lawyer can help you chart a new financial course with confidence.

FHA 203k Improvement Loans

Updated August 05, 2016

An FHA 203k loan allows you to borrow money, using only one loan, for both home improvement and a home purchase. These loans can also be used just for home improvements, but there might be better options available. 203k loans are guaranteed by the FHA , which means lenders take less risk when offering this loan. As a result, it’s easier to get approved (especially with a lower interest rate ).

FHA 203k Basics

Some properties are almost perfect – the location is good, and property has potential, but significant improvements need to be made.

Without those repairs, the home might not be suitable for living, and lenders might be unwilling to fund loans on a property with problems.

FHA 203k makes it possible for you to turn that property into a home (and to get that property off the market and make it a valuable part of the community again).

Fund repairs and purchase: you can borrow enough to make your purchase plus enough to make the necessary improvements. Because the Federal Housing Authority (FHA) is involved, lenders are willing to move forward with a property they otherwise wouldn’t touch.

Temporary housing: unless you want to live in a construction zone, you’ll need funds for other housing arrangements. In certain cases, you can borrow extra to cover rent or your existing mortgage for up to six months.

Project overview: your project must be completed within six months. Funds are placed in an escrow account and paid out to contractors as the work is completed.

It’s essential to work with reputable contractors who don’t underbid and who are familiar with the 203k process.

Eligibility: owner/occupants and nonprofit organizations can use FHA 203k, but not investors. The program is designed for one to four unit properties, but condo and townhome owners can use the program for interior projects.

You don’t need perfect credit – because the FHA protects lenders in case you default, it’s easier to qualify. You still need sufficient income to cover the payments. It’s best to have a debt to income ratio better than 31/43, but you might be able to go higher.

Loan Details

You must borrow at least $5,000, and there are maximum limits set by the FHA that vary by location. For most people buying a single-family home that is not extravagant, you’ll fall into these limits. For smaller projects, the Streamlined FHA 203k allows you to borrow less (with an easier process).

You can borrow enough to finance 110% of the home’s projected value after improvement. Appraisers will review your plans and take the future value of your home into account.

Interest rate: the interest rate will vary, depending on rates in general and your credit. Expect to pay a rate that’s 1% or so higher than you’d pay on a standard loan. Think of this as the cost of easier approval (or bundling both your purchase and improvement loans into one).

Plus, lenders need to do extra work tracking the progress of your project and handling payouts. At the same time, the loan is insured by the FHA, so lenders might offer a lower rate than you’d get elsewhere. Compare offers and get the loan that works best for you. 2023k loans can be either fixed-rate or variable rate loans with repayment up to 30 years.

Down payment: with the 203k loan, like other FHA loans, you can pay as little as 3.5% up front. But there are good reasons for making a larger down payment whenever you can.

Contractors and DIY

203k loans give you the opportunity to make significant improvements to your home. You also get to do the things that matter most to you: if you want to use green or energy-efficient appliances and materials, you’re free to do so. You can’t fund luxury items through 203k, but you can make dramatic improvements.

Unfortunately, you’re generally not allowed to do the work yourself. Even if you are a skilled, licensed contractor, don’t expect to handle all of the work.

You must use licensed contractors for all work, and it’s important that they know you’re using 203k. This might rule out certain handymen you’ve used in the past and have developed a relationship with. The 203k process is all about paperwork and following certain rules, so brace yourself for less freedom than you might have imagined when remodeling your home.

Pros and Cons

203k loans are great for improving a property that you hope to live in. However, benefits never come for free.

Cost: FHA 203k loans might or might not be your most affordable option. You’ll pay an up-front mortgage insurance premium (MIP), and you’ll also pay a small ongoing fee with each monthly payment. Your lender may also charge a supplemental origination fee (the greater of 1.5% or $350). Other non-203k lenders will certainly charge fees, so you need to get quotes from several sources (looking several different types of loans) before you make a decision.

Paperwork: these loans are notorious for the paperwork. You’ll fill out numerous forms, and your contractors are also subject to some of this pain. If you don’t have the patience to follow through on everything, consider other options.

Time: in addition to the time it takes to deal with paperwork, you’ll have to wait on answers from the FHA and your lender. They’ve got just as much (or more) paperwork to do on their end. Especially if you’re trying to buy a property in a competitive market, this can be a dealbreaker.

Required standards: you might have certain improvements in mind, but the FHA also requires that you deal with health and safety issues and meet all building codes. Lead paint, electrical problems, and other items may be added to your project list unexpectedly. Dealing with those issues is probably a good idea anyway, but you have less choice on when and how to fix those problems.

Basic photography workshop in Bangalore

Open for everyone (beginners, amateurs and professionals) and no pre-requisites.

Rated as one of the top photography workshop in India

This two day course in Bangalore is for everybody looking for a introduction to the fascinating world of photography. Join professional photographer Kalyan Varma as he shares his secrets and insights into how to make photographs that convey a powerful sense of place, capture the essence of a person or a rare moment. Get real-world advice to help make the most of your camera. Using a slide show/lecture format, Kalyan will show you how to add depth and meaning to your images.

This is a class which will fundamentally change the way you see. It has nothing to do with technical sophistication or complicated equipment. This is a class about getting inspired, learning new things, working through burnout, and getting back to the part of photography that was fun and attracted you in the first place: looking and seeing.

The Photography Workshop is designed for photographers of all levels. The workshop caters to those who seek more intensive instruction, and includes photo editing, instruction, and critique sessions.

You will also learn basic photography concepts, such as exposure calculation, depth-of-field, effective composition guidelines and how to use your flash effectively. You will have the opportunity to practice your newly acquired skills during field trip. With a strong emphasis on practical, hands-on shooting exercises, this course will make you feel in complete control over your digital camera equipment. In-depth review and critique sessions are held to give you valuable and encouraging feedback.

Most of all, these workshops will inspire you and change the way you look at photography forever.

Course Contents

Master Exposure. Learn how to make a great exposure and forget all the guesswork. You will be shooting your camera on Manual Mode and really learn to recognise and use exposure compensations. It is all about recognizing middle-tones; exposing for all tonalities grey, black, and white, understanding histograms and using them effectively. Understanding exposure, is one of the KEYS to successful shooting, and you will master exposure during this course!

Composition. Learn the fine points of effective compositions finding effective compositions, using lenses effectively; seeking the best perspective; texture, color, point of view; knowing zones of sharpness; selective focus; and the rule of thirds. This will also make you think like an artist. From trying to take pictures, learn to make photographs. Learn some of the fine points from painters and others, who use visual elements to compose beautiful imagery.

Equipment & Lenses. Know what to buy and what not to buy and learn how to use your gear effectively. Learn from choosing the right body with right features to connect to the right set of lenses. Also tips about photography accessories like tripod, CF cards, flash, filters, bags, etc. will be discussed. Understand the tools of trade for close-up and landscape photography. This session will also teach you how to manage and take care of your camera gear.

Critique. This workshop also gives you a chance to get your images critiqued. A very constructive critique session which will include technical and aesthetic aspects.

Photography in Practice. Learn what it takes to push your photography to the next level and keep it going. You will learn behind-the-scenes information on what it takes to publish your work, work for magazines like National Geographic and most of all, doing photography with a purpose.

Field Learning. Spend few hours shooting in the field and put your technical and artistic skills to practical test. There will be options to shoot landscapes, portraits, wildlife and street scenes. You will always have Kalyan on hand to help you in any of the aspects.

Brain-picking time. Ask any question from flash photography to HDR stitching. A full session is dedicated to clarify all your photography related doubts.

Click here to find out more about other exciting workshops and wildlife photography expeditions.

Dates

Location

Shilton Royale No 9, 100ft road, Kormangala Bangalore – 560047

Instructor

Kalyan Varma is a professional wildlife photographer and explorer, who works on assignments with National Geographic and BBC. His work has appeared in many publications worldwide, including National Geographic, GEO, Lonely Planet, BBC Wildlife, Wildlife Conservation and other magazines.

Pre-requisite

Participants are requested to get their camera gear along with some of their best photographs which they can show at the end of the class. Some of these photos will also be used as test images in the class in the post-process session. Getting a camera would be nice, but it’s not an absolute must.

Cost

The cost for the course is Rs 6900. The price includes the 2 full day workshop, lunch & snacks on both the days. If you are a student (school or college), we offer you a 25% discount. Kindly let us know.

Reviews from participants

Mortgage Basics: Costs

People generally think about a mortgage in terms of the monthly payment. While that payment represents the amount of money needed each month to cover the debt on the property, the payment itself is actually made up of a series of underlying expenses. The down payment and closing costs must also be taken into consideration.

Major Costs Regardless of whether a mortgage is based on a fixed-rate loan or a variable-rate loan, the series of underlying components that combine to equal the amount of the monthly payment typically includes both principal and interest. Principal simply refers to the amount of money originally borrowed. Interest is a fee charged to the borrower for the privilege of borrowing money.

In a mortgage made up of just principal and interest, the payment will remain the same over time, but the amount of the payment dedicated to each of the underlying components will change. Consider, for example, a $1,000 monthly mortgage payment. The initial years of a mortgage payment consist primarily of interest payments, so the first payment might be $900 dollars in interest and $100 in principal. In later years, this equation reverses, because after each mortgage payment, a portion of the initial amount owed is reduced. Therefore, the majority of the monthly payment at this point in time goes towards principal repayments. Toward the end of the life of the mortgage, the $1,000 payment might consist of $900 in principal and $100 in interest.

Additional Direct Costs The subcomponents of most, but not all, mortgages also include real estate taxes and insurance. The property tax component is determined by taking the amount of taxes assessed on the property and dividing the number by the number of monthly payments. For most borrowers, that number will be 12, but there are some mortgage programs that offer bi-weekly payments to enable borrowers to pay off their loans more quickly. The lender collects the payments and holds them in escrow until the taxes are due to be paid.

The insurance component will include property insurance, which protects the home and its contents from fire, theft and other disasters. There is another type of insurance that will need to be purchased if 80% or more of the home’s purchase price was financed through a mortgage. In this case, the insurance component of the monthly mortgage payment will also include an allocation for private mortgage insurance (PMI). While property insurance protects the homeowner against hazards, PMI protects the lender by minimizing the risk to the lender if the borrower defaults on the mortgage. This safety net enables lenders to sell the loan to investors. (To learn more, read Insurance Tips For Homeowners .)

While principal, interest, taxes and insurance comprise a typical mortgage, some borrowers opt for mortgages that do not include taxes or insurance as part of the monthly payment. When borrowers choose a loan structure that does not account for taxes or insurance, the borrowers are responsible for making those payments on their own, outside of the mortgage payment.

More Than Just the Mortgage In addition to the money required to cover the mortgage, simply obtaining a mortgage often requires a substantial amount of money to cover the down payment and closing costs. Ideally, the down payment is equal to or greater than 20% of the price of the dwelling. The 20% number is significant because anything below that requires the purchase of PMI, which increases the amount of the monthly mortgage payment.

Closing costs include a variety of expenses over and above the price of the property. These can be divided into two categories: recurring costs and non-recurring costs. Recurring costs include property taxes and homeowner’s insurance; one year’s worth of each must be paid in advance and put in an escrow account to ensure that the cash is available when it is time for the bills to be paid. Non-recurring costs include fees related to conducting a real estate transaction, and include loan origination costs, title search fees, surveys, credit report costs, origination points. discount points and other miscellaneous expenses. (To learn more, check out Mortgage Points – What’s The Point? )

Origination points. which generally equal 1% of the cost of the loan, are a fee paid to the lender for giving out a loan (a transaction cost). Discount points, on the other hand, are prepaid interest used to reduce the interest rate on the loan. Like origination points, each discount point is equal to 1% of the amount of the loan. Purchasing up to three discount points is not unusual. Paying discounts points reduces subsequent monthly mortgage payments.

Some lenders permit points and closing costs to be financed in the mortgage. Because these costs can be significant, often averaging more than 5% of the amount of the loan, rolling them into the mortgage can result in a notable increase in the monthly mortgage payment.

Initially, borrowers often focus on the amount of money required to purchase the home of their dreams and the resulting monthly payment that will accompany that purchase. Later in the process, they realize that a $300,000 loan is likely to be accompanied by an additional $20,000 to $30,000 in closing costs. Keep these costs in mind when you are shopping for a new home.

Second Mortgages – Advantages and Disadvantages

Updated July 10, 2016

A second mortgage is a loan that lets you borrow against the value of your home. Your home is an asset, and over time, that asset can gain value. Second mortgages, also known as home equity lines of credit (HELOCs) are a way to put that asset towards other projects and goals.

What is a Second Mortgage?

A second mortgage is a loan that uses your home as collateral – similar to a loan you might have used to purchase your home.

The loan is known as a “second” mortgage because your purchase loan is often the first loan that is secured by a lien on your home .

Second mortgages tap into the equity in your home. which you might have built up with monthly payments or through market value increases.

Loans can come in several different forms.

Lump sum: a standard second mortgage is a one-time loan that provides a lump sum of money you can use for whatever you want. With that type of loan, you’ll repay the loan gradually over time, often with fixed monthly payments. With each payment, you pay a portion of the interest costs and a portion of your loan balance (this process is called amortization ).

Line of credit: it’s also possible to borrow using a line of credit. or a pool of money that you can draw from. Whit that type of loan, you don’t ever have to take any money – but you have the option to do so if you want to. You’ll get a maximum borrowing limit, and you can continue borrowing (multiple times) until you reach that maximum limit.

Like a credit card, you can even repay and then borrow again.

Rate choices: depending on the type of loan you use (and your preferences), your loan might come with a fixed interest rate that helps you plan your payments for years to come. Variable rate loans are also available and are the norm for lines of credit.

Advantages of Second Mortgages

Loan amount: second mortgages allow you to borrow a large amount. Because the loan is secured against your home (which is generally worth a lot of money), you have access to more than you could get without using your home as collateral. How much can you borrow? It depends on your lender, but you might expect to borrow (counting all of your loans – first and second mortgages) up to 80% of your home’s value .

Interest rates: second mortgages often have lower interest rates than other types of debt. Again, securing the loan with your home helps you because it reduces risk for your lender. Unlike unsecured personal loans like credit cards, second mortgage interest rates are commonly in the single digits.

Tax benefits: in some cases, you’ll get a deduction for interest paid on a second mortgage. There are numerous technicalities to be aware of, so ask your tax preparer before you start taking deductions. For more information, learn about the mortgage interest deduction .

Disadvantages of Second Mortgages

Of course, life is full of tradeoffs. Be aware of the pitfalls of using a second mortgage. The costs and risks mean that these loans should be used wisely.

Risk of foreclosure: one of the biggest problems with a second mortgage is that you have to put your home on the line. If you stop making payments, your lender will be able to take your home through foreclosure. which can cause serious problems for you and your family. For that reason, it rarely makes sense to use a second mortgage for “current consumption” costs such as entertainment and regular living expenses – it’s just not sustainable or worth the risk.

Cost: second mortgages, like your purchase loan, can be expensive. You’ll need to pay numerous costs for things like credit checks, appraisals. origination fees. and more. Even if you’re promised a “no closing cost” loan, you’re still paying – you just won’t see those costs transparently.

Interest costs: any time you borrow, you’re paying interest. Second mortgage rates are typically lower than credit card interest rates, but they’re often slightly higher than your first loan’s rate. Second mortgage lenders take more risk than the lender who made your first loan. If you stop making payments, the second mortgage lender won’t get paid unless and until the first lender gets all of their money back.

Common Uses of Second Mortgages

Choose wisely how you use funds from your loan. It’s best to put that money towards something that will improve your net worth (or your home’s value) in the future – because you need to repay that loan.

Home improvements are a common choice because the assumption is that you’ll repay the loan when you sell your home with a higher sales price

Avoiding private mortgage insurance (PMI) might be possible with a combination of loans – just make sure it makes sense compared to paying – and then canceling – PMI

Debt consolidation: you can often get a lower rate. but you might be switching from unsecured loans to a loan that could cost you your house

Education: as with other situations, you’re creating a situation where you could face foreclosure. See if standard student loans are a better option

Tips for Getting a Second Mortgage

Shop around and get quotes from at least three different sources. Be sure to include the following in your search:

Get prepared for the process by getting money into the right places and getting your documents ready. This will make the process much easier and less stressful .

Beware of dangerous loan features. Most conventional loans do not have these problems, but it’s worth keeping an eye out for them:

Balloon payments that you aren’t able to budget for

Voluntary insurance that might duplicate coverage you already have (or give you coverage you don’t need)

Fixed Rate Mortgages

Fixed rate mortgages allow a borrower to know what all future monthly payments will be. Because the interest rate is fixed. your payments will not vary when you use a fixed rate mortgage.

With a fixed rate mortgage, you calculate how long it will take to pay off all the principal and interest, and you arrive at a monthly payment. You will pay the same monthly payment though the entire term of the fixed rate mortgage.

Of course if you sell your home before the end of the term, you can just pay off the balance that you owe.

Fixed Rate Mortgage Choices

There are two main types of fixed rate mortgages:

30 Year Fixed Rate Mortgages and

15 Year Fixed Rate Mortgages

Other terms (such as 10 or 20 Year Fixed Rate Mortgages) exist but they are not as commonly used.

Fixed Rate Mortgage Advantages

Fixed rate mortgages are helpful because they allow you to predict what your housing payments will be in the future. No matter what happens with interest rates, your payments won t change if you ve used a fixed rate mortgage. However, payments can change with other risky mortgages .

Fixed Rate Mortgage Disadvantages

With a fixed rate mortgage, you typically have a higher monthly payment than you might have with some of the other mortgage choices.

That is because the fixed rate mortgage offers you the safety of knowing that your payments will not increase. Because lenders don t know what will happen with interest rates over the next 15 to 30 years, they charge you for this luxury.

Should You Use a Fixed Rate Mortgage?

You should discuss your particular situation with a talented and helpful lender.

Generally, you ll find that fixed rate mortgages are the right choice if:

You think interest rates are low

You can afford the payment for the house you want

You need to budget for and predict monthly payments

You will keep your home for a relatively long period of time

Getting the Best Fixed Rate Mortgage

To get the best fixed rate mortgage you just need to shop around and do your homework. Ask for quotes from several lenders, and ask your friends and associates if they can refer an honest lender.

Fixed rate mortgages can have a variety of fees built into the final payment that you are quoted. Ask for a written, itemized explanation of what fees you are paying — and why. It never hurts to ask if the lender will waive a fee or two. If you are a good borrower or if you re making a large purchase, your chances are better.

Second Mortgages – Advantages and Disadvantages

Updated July 10, 2016

A second mortgage is a loan that lets you borrow against the value of your home. Your home is an asset, and over time, that asset can gain value. Second mortgages, also known as home equity lines of credit (HELOCs) are a way to put that asset towards other projects and goals.

What is a Second Mortgage?

A second mortgage is a loan that uses your home as collateral – similar to a loan you might have used to purchase your home.

The loan is known as a “second” mortgage because your purchase loan is often the first loan that is secured by a lien on your home .

Second mortgages tap into the equity in your home. which you might have built up with monthly payments or through market value increases.

Loans can come in several different forms.

Lump sum: a standard second mortgage is a one-time loan that provides a lump sum of money you can use for whatever you want. With that type of loan, you’ll repay the loan gradually over time, often with fixed monthly payments. With each payment, you pay a portion of the interest costs and a portion of your loan balance (this process is called amortization ).

Line of credit: it’s also possible to borrow using a line of credit. or a pool of money that you can draw from. Whit that type of loan, you don’t ever have to take any money – but you have the option to do so if you want to. You’ll get a maximum borrowing limit, and you can continue borrowing (multiple times) until you reach that maximum limit.

Like a credit card, you can even repay and then borrow again.

Rate choices: depending on the type of loan you use (and your preferences), your loan might come with a fixed interest rate that helps you plan your payments for years to come. Variable rate loans are also available and are the norm for lines of credit.

Advantages of Second Mortgages

Loan amount: second mortgages allow you to borrow a large amount. Because the loan is secured against your home (which is generally worth a lot of money), you have access to more than you could get without using your home as collateral. How much can you borrow? It depends on your lender, but you might expect to borrow (counting all of your loans – first and second mortgages) up to 80% of your home’s value .

Interest rates: second mortgages often have lower interest rates than other types of debt. Again, securing the loan with your home helps you because it reduces risk for your lender. Unlike unsecured personal loans like credit cards, second mortgage interest rates are commonly in the single digits.

Tax benefits: in some cases, you’ll get a deduction for interest paid on a second mortgage. There are numerous technicalities to be aware of, so ask your tax preparer before you start taking deductions. For more information, learn about the mortgage interest deduction .

Disadvantages of Second Mortgages

Of course, life is full of tradeoffs. Be aware of the pitfalls of using a second mortgage. The costs and risks mean that these loans should be used wisely.

Risk of foreclosure: one of the biggest problems with a second mortgage is that you have to put your home on the line. If you stop making payments, your lender will be able to take your home through foreclosure. which can cause serious problems for you and your family. For that reason, it rarely makes sense to use a second mortgage for “current consumption” costs such as entertainment and regular living expenses – it’s just not sustainable or worth the risk.

Cost: second mortgages, like your purchase loan, can be expensive. You’ll need to pay numerous costs for things like credit checks, appraisals. origination fees. and more. Even if you’re promised a “no closing cost” loan, you’re still paying – you just won’t see those costs transparently.

Interest costs: any time you borrow, you’re paying interest. Second mortgage rates are typically lower than credit card interest rates, but they’re often slightly higher than your first loan’s rate. Second mortgage lenders take more risk than the lender who made your first loan. If you stop making payments, the second mortgage lender won’t get paid unless and until the first lender gets all of their money back.

Common Uses of Second Mortgages

Choose wisely how you use funds from your loan. It’s best to put that money towards something that will improve your net worth (or your home’s value) in the future – because you need to repay that loan.

Home improvements are a common choice because the assumption is that you’ll repay the loan when you sell your home with a higher sales price

Avoiding private mortgage insurance (PMI) might be possible with a combination of loans – just make sure it makes sense compared to paying – and then canceling – PMI

Debt consolidation: you can often get a lower rate. but you might be switching from unsecured loans to a loan that could cost you your house

Education: as with other situations, you’re creating a situation where you could face foreclosure. See if standard student loans are a better option

Tips for Getting a Second Mortgage

Shop around and get quotes from at least three different sources. Be sure to include the following in your search:

Get prepared for the process by getting money into the right places and getting your documents ready. This will make the process much easier and less stressful .

Beware of dangerous loan features. Most conventional loans do not have these problems, but it’s worth keeping an eye out for them:

Balloon payments that you aren’t able to budget for

Voluntary insurance that might duplicate coverage you already have (or give you coverage you don’t need)